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Apple leans on apps as iPhone sales stall in China

Apple sees stronger growth in its services business as sales of iPhones slip in China's fiercely competitive smartphone market. But that approach could come with its own risks. Ryan Brooks reports.

TRANSCRIPT +

In China's cutthroat smartphone market-
-Apple's making a play to hitch sales onto services-
-in everything from digital payment to online games.
The move could be crucial money after maker the company posted a dip in first quarter iPhone sales -
with revenue in China slipping as local rivals eat into the market.
That strategy makes sense given China drove 50% of growth on the App Store last year.
But as Reuters' Cate Cadell explains, the new focus comes with some local problems.
SOUNDBITE (English) CATE CADELL, REUTERS, SAYING:
"It comes with a lot of separate risks which aren't involved in hardware. So there's a lot of things that the Chinese government has been cracking down on in the last year, including livestreaming, including media, including games, and all of these things fit into Apple's new services ecosystem. We can expect that they're going to- come into conflict with regulators on the content side a lot more than compared to just selling straight hardware."
As Beijing clamps down online on one side-
Experts expect local brands to move aggressively into services, too...
To compete, Apple really needs to nail its next iPhone model this fall.
SOUNDBITE (English) CATE CADELL, REUTERS, SAYING:
"Getting that next phone into the hands of consumers is really really important, not just for selling hardware and making money but for getting a bigger install base for getting more of these services and really bring people into their ecosystems so they can compete with people like WeChat,
these large China players that are coming up and building their own ecosystems."
In April last year, regulators forced Apple to pull its iBooks and movies from China just weeks after they went live.
And the company's gaming apps have had setbacks with new rules that say foreign developers need local partners.
Those are hurdles that local brands with cheaper phones won't always need to jump.
Making it that much harder to convince Chinese buyers to stay inside that Apple's universe.

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